MUMBAI, March 26 (Reuters) - ICICI Securities’ initial public offering raised a lower-than-expected $540 million after the Indian brokerage fell short of covering its order books against a backdrop of investor caution about rich valuations and a volatile stock market.

ICICI Securities' muted IPO, which follows that of state-run military aircraft maker Hindustan Aeronautics Ltd last week here, does not augur well for the pipeline of IPOs this year after a record $11 billion was raised from first-time share sales in 2017.

It is also not good news for the Indian government which has set a target of raising 800 billion rupees ($12.34 billion) from asset sales in the fiscal year beginning April to help fund its deficit.

While stock markets correcting here from record high levels hit in late January has made some investors nervous, a rush of IPOs in March with combined fund-raising plans of over $2 billion has also hit appetite, market participants said.

Some analysts had also said that the valuation of ICICI Securities, the biggest Indian equity broker and part of the country’s third biggest bank ICICI Bank, was expensive.

At 520 rupees a share, the upper end of a narrow range, the IPO was priced at nearly 50 times its 2016/17 earnings and more than 34 times the book value, according to Centrum Broking.

The three-day share sale received bids for 78 percent here of the shares on offer for public investors, including funds and retail investors.

Combined with shares allotted to anchor investors, nearly 88 percent of the offer was taken up, raising the brokerage’s parent ICICI Bank, which sold shares in the IPO, about 35 billion rupees ($540 million). The bank had originally aimed to raise as much as 40.17 billion rupees ($619.72 million) from the sale.

The ICICI Securities IPO follows the listing of ICICI Bank's life and non-life insurance arms in the past two years, and will help bolster the bank's capital base at a time when banks are seeing provisions for soured loans here rising.

Bank of America Merrill Lynch, Citigroup, CLSA, Edelweiss, IIFL and SBI Capital Markets were the banks managing the IPO. The stock is scheduled to begin trading on April 5. ($1 = 64.8200 Indian rupees) (Reporting by Devidutta Tripathy; Additional reporting by Vishal Sridhar in Bengaluru Editing by Euan Rocha and Jane Merriman)